How the top open medical schemes’ contribution increases compare to inflation

Bestmed, Fedhealth and Medshield have had the highest average annual contribution increases among the top open medical schemes over the past 15 years, according to Alexander Forbes Health’s 2021/22 Medical Aid Insights.

Read: Medical schemes are robust with healthy reserves, Sustainability Index shows

Alexander Forbes Health’s analysis found that the average contribution increases of the country’s top 10 open medical schemes since 2007 have far exceeded the average Consumer Price Index (CPI) of 5.7%.

Bestmed led the way, with an average contribution increase of 9.9%, while Fedhealth’s contributions increased by 9.6% and Medshield’s by 9.4%.

KeyHealth had the lowest average contribution increase, 7.4%, followed closely by Sizwe, at 7.5%, and Hosmed, at 8.1%.

Discovery, the country’s largest open scheme, had an average contribution increase of 8.6%, which was less than Medihelp’s 8.7%, but higher than the 8.5% posted by Momentum and Bonitas.

According to Alexander Forbes Health, contributions have increased by an average of 7.7% a year over the past 21 years, whereas inflation averaged 5.5% a year over the same period, and medical care and health expenses inflation has been, on average, 7.4% a year.

The report said the gap between medical scheme contribution inflation and CPI has reduced in recent years, most likely as a result of efforts by medical schemes to manage the costs charged by providers.

However, other factors have been responsible for reducing the gap: members buying down to lower-cost benefit options, new entrants joining low-income options, and changes to family size, possibly when dependants are removed because of affordability constraints.

The margin between CPI and the industry’s contribution rate was highest from 2008 to 2011.

Since 2012, contribution increases have tended to be closer to CPI. The increases announced for 2020 were higher than in prior years partly because of the higher claims ratio in 2019.

The claims ratio is the ratio of risk claims to risk contributions (the proportion of contributions used to fund claims, excluding medical savings accounts).

Medical schemes’ contribution increases for this year ranged from -0.5% to 12%, Alexander Forbes Health said.

Discovery Health, Fedhealth and Momentum implemented a contribution freeze for a varying number of months, then increasing by 7.9%, 7.4% and 6% respectively.

Medihelp implemented a weighted contribution decrease of 0.45%, with decreases ranging from 4.2% to 9.4%. On the flip side, Health Squared implemented a 12% increase.

Huge operating surpluses

Medical schemes recorded an operating surplus of almost R19 billion in 2020, far exceeding the surpluses in previous years, largely because of lower claims during the lockdowns.

A scheme’s operating result shows its surplus or deficit after claims and non-healthcare expenditure are deducted from contribution income and excluding investment income.

Open schemes had an operating surplus of R11.85bn in 2020, driven by the large operating surplus of R7.45bn generated by Discovery.

Restricted schemes had an operating surplus of R6.98bn in 2020, of which R4.69bn was generated by the Government Employees Medical Scheme (GEMS).

In 2020, with the addition of investment and other income, medical schemes achieved a net result of R22.95bn, compared with the overall net surplus of R6.36bn 2019.

Open schemes achieved an overall net result of R14.23bn (2019: R2.25bn) and restricted schemes achieved an overall net surplus of R8.72bn (2019: R4.11bn).

In 2020, all open and restricted schemes achieved a net surplus, compared with 12 of 21 open schemes and 45 of 58 restricted schemes in 2019.

Non-healthcare expenditure is decreasing

Non-healthcare expenditure (NHE) has been decreasing across all schemes since 2005. It fell significantly between 2014 and 2015, when managed care fees relating to healthcare services have been recognised as part of healthcare expenditure.

Total NHE, as a proportion of gross contribution income (GCI), decreased marginally in 2020 for the medical schemes industry.

Among open schemes, the NHE proportional spend decreased marginally from 9.8% to 9.6% in 2020.

Restricted medical schemes decreased the proportion of GCI spent on NHE from 5.2% to 5.1%. The lower level of NHE within restricted schemes was largely driven by GEMS and Polmed, whose NHE was 4.5% and 3.6% of CGI, respectively, in 2020.

Restricted schemes are expected to have lower NHE, primarily because they have lower or no distribution expenses or broker fees, and certain operating expenses may be subsidised by their participating employers.

However, some restricted schemes, for example Profmed and LA Health, compete with the open market to a certain extent, and as a result will budget for marketing expenses and broker fees.

The rise of Discovery and GEMS

The report shows how Discovery and GEMS have grown to dominate the medical schemes market.

In 2001, Discovery’s market share, based on the number of principal members, was 16%; it was 33% at the end of 2020. All other open schemes have seen their market share shrink from 54% to 25% over the same period.

Alexander Forbes Health said the decline in other open schemes’ market share was not only a result of members moving to Discovery, but also the result of public sector employees moving from open schemes to GEMS.

In 2006, when the first members joined, GEMS’s total market share was 2%; it was 19% in 2020.

Number of schemes has fallen dramatically

From the end of 2000 to the end of 2020, the number of medical schemes decreased by 47%, from 144 to 76, mainly as a result of amalgamations among the smaller, less sustainable schemes.

The number of open medical schemes has decreased by 29 (62%) compared with a decrease of 39 (40%) in restricted medical schemes over the past 21 years. This consolidation appears to be driven in part by:

  • The difficulty in maintaining the sustainability of small schemes in the current environment, particularly for restricted schemes; and
  • The significant amount of time needed to manage an employer-based restricted scheme.

Despite the decrease in the number of schemes, the industry has grown by 1.5 million principal members (58%) and 2.3 million beneficiaries (35%) since 2000.

The 76 medical schemes operating in South Africa at the end of 2020 served 4 million principal members and 8.9 million beneficiaries.

The number of principal members covered on medical schemes decreased by 1% in 2020, while the total number of beneficiaries decreased by 0.6%, driven mainly by the growth in beneficiaries covered on restricted medical schemes.

A total of 54.3% of principal members participated in open medical schemes at the end of 2020, with the balance of 45.7% participating in restricted medical schemes. This is in line with the membership split seen at the end of 2019.

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